Facebook shares nosedive 9%, on negative report

Barron's prices Facebook at $15 or about 24 times projected 2013 profits

Wasn’t it just around a week or two ago that Facebook share hit a six-week high, and seemed to finally be rebounding from the lows that it experienced earlier in the month? What a difference 10 days make.

This past weekend, Andrew Bary wrote an article for financial magazine Barron’s, entitled Still Too Pricey, in which he slammed Facebook’s business model and Mark Zuckerberg, along with pricing the social giant's shares at $15.

In response, Facebook shares dived on Monday. Shares were down over 10% at one point during the day, and ended the day at $20.79, down 9.06%. The shares are currently down 46% from IPO price.

"Is the stock a buy? The short answer is 'No,'" Bary wrote in his article. "What are the shares worth? Perhaps only $15. That would be roughly 24 times projected 2013 profit and six times estimated 2013 revenue of $6 billion, still no bargain price.”

Comparing Facebook unfavorably to Apple and Google, Bary cited the small screen as a reason that Facebook’s app model will not work, since it does not allow Facebook, “much room to configure ads without alienating users.” In addition, being an app means that users will close it once they are finished, unlike the Apple and Google operating systems, which provide users with more content.

“Moreover, Apple and Google, which control most mobile operating systems, siphon away some of the revenue from Facebook apps.”

Bary even went after Mark Zuckerberg, citing the fact that he said he wanted to compensate his employees with shares instead of cash, giving them more shares as the stock declines, as evidence of his “cavalier attitude.”

The result of the scathing report was that Facebook’s stock erased all the gains it had made in the past week. The stock gains had been based on comments from Mark Zuckerberg, as well as Facebook’s moves to increase mobile ad revenue.

Facebook stock cratered following the end of the company’s first lockup in August, hitting an all time low on September 4th, after the stock. The stock began to rebound, however, following an interview with Zuckerberg, in which he said that Facebook is now a mobile company, and that Facebook’s mobile ads were already doing better than its desktop advertisements.

Facebook Exchange, which allows marketers to use real-time customer data to reach a larger audience on Facebook, came out of beta stage earlier this month.

Essentially, if a person visits a website, but does not buy anything, that business can retarget those people the next time they go on Facebook. Since debuting in June, Facebook Exchange was already very successful, according to multiple companies who use it.

Then, last week, it was announced that Facebook testing a new mobile advertising network, which would use data it has collected on its users to advertise on third-party apps and websites.

All of these developments helped Facebook investors rest a little easier about the stock, and helped it it to reach a six week high of $22 on September 14. Now all of that good will has now been erased due to one bad report.